Climate Change and Valuing the Environment

This essay discusses the impact of climate change on the economy and society, the perspectives of economists and the public, and the methods used to value environmental goods.

Climate Change and Valuing the Environment1
Climate Change and Valuing the Environment
By Name
Course
Instructor
Institution
Location
Date

Climate Change and Valuing the Environment2
Climate Change and Valuing the Environment
Recently climate change has been an issue of concern among economists, scientists,
others specialists and the general public. Several research and articles have been published by
economists regarding the impact of climate change. Do economic conditions affect public
opinion regarding climate change? There have been several perspectives about how
environmental attitudes are affected by conditions. Climate change commonly refers to the
change in regional or global climate patterns and it is mainly associated with the increase in the
carbon dioxide released into the atmosphere due to fossil fuels usage. The public and economics
have had their opinions on climate change and valuing the environment. The views given by the
economists are important although they might differ in their perspective on the impacts of
climate change (Oreskes, 2018, p 35). Economists stand out more of conservative rather than
scientists since they mainly focus on the cost of alleviation and the market-driven adaptation.
This essay discusses some recent examples of the divergence in views on the impacts of climate
change and one stated preference method and one revealed preference method for valuing
environmental goods. The perspectives of economists and public give essential insight on the
impact of climate change and these perspectives should be looked into despite the differences
that may arise.
Let me start by discussing the perspective of John Locke who is a famous economist
known for his contribution to global economics. John Locke main view on the impact of climate
change was revolving around the number of positive jobs versus the number of negative jobs that
are going to be lost or created by climate change specifically climate change policies. John

Climate Change and Valuing the Environment3
Locke in his views he illustrated that the jobs created by climate change all over the world have
the potential of eliminating the negative impact of the jobs lost due to climate change (Hornsey
et al, 2016). However, John Whitehead, an ASU economics professor, on a press release titled
John Locke gets it wrong: it's not about jobs the professor distances his department and himself
from John Locke report. In his perspectives, he portrays the damages avoided as the benefits of
climate change. Professor Whitehead believes jobs are not included in a benefit-cost analysis and
that they are macroeconomic issues (Carleton and Hsiang, 2016). Therefore, microeconomic and
environmental policies have a virtually nil net effect. John Locke views on the impact of climate
change saw the possibility of positive benefits while Professor Whitehead had a different
opinion.
Adam Smith is one of the famous economists who shared their views on the impact of
climate change. Adam Smith through his organization, Adam Smith International, gave a
development- focused attitude to climate change. Climate change is a threat to the survival of
vulnerable and poorest people in the world. Climate change is a big challenge as it hinders the
growth of economies in 3rd World Countries which are struggling to improve agriculture so that
they can feed their swelling population (Boserup, 2017). The development-focused approach
aims at transforming livelihoods in developing countries in an attempt to respond to the impact
of climate change. The approach focuses on educating poor communities that depend on natural
resources and agriculture to adapt to climate changes quickly (Nelson et al, 2014). Governments
and states are encouraged to encourage the use of renewable sources of energy to supplement the
exhausted natural energy sources (Intergovernmental Panel on Climate Change, 2015). The
organization believes that building water infrastructure so that it withstands climate change
impacts, therefore, enabling a lasting economic growth. Smith and his organization believe that

Climate Change and Valuing the Environment4
the impact of climate change is slowing the growth of economies, especially in the developing
countries.
The public population also has an opinion concerning their beliefs and attitudes on
economics and science of climate change with global warming being the main point of focus.
The individual opinion is influenced by a number of factors such as geographic region, ideology,
demographics, political identification, education and individual risk assessment (Wise et al,
2014). The public opinions have an influence on the policy made by the government that
regulates the economy of a country (Moore and Diaz, 2015). For instance the public belief and
attitude towards carbon emission me compel the government to establish and implement policies
that regulate carbon emission despite of the negative economic implication such policies might
have. Climatic change has created anxiety among the public and the public has a negative
attitude towards the impact caused especially global warming (Smith et al, 2016). According to a
survey conducted in the United States shows that fifty percent of the adult population believes
that climate change is caused by human activities, 23% think that natural earth's environmental
patterns are causing climate change while 25% of the population do don't believe the earth is
warming up. The public opinion on the impact of climate change varies from one individual to
another and these opinions cannot be relied on since they are not proven.
Understanding the concept of values of environmental goods is important in valuing the
environment. There are two types of values namely non-use value and use value (Freeman III,
Herriges and Kling, 2014). Use value entails the utility or satisfaction obtained by consumers
when through direct consumption of goods. Use value may comprise current use, expected use
and possible use when it comes to the case of environmental goods. The value placed on a future
ability to use the environment is known as option value. Non-use value refers to the utility

Climate Change and Valuing the Environment5
gained by an individual without consuming the good directly. Non-use value is classified into
Bequest value, Existence value and Altruistic vale. We need to value the environment because
there is no price data for non-marketed environmental goods. We also need information to give
guidelines on compensation guidelines for victims as well as information to help assess the
benefits of conserving the environment and this will help in policymaking.
Stated Preference Method is also known as Contingent valuation (CV) and for more than
thirty years the technique has been used by economists to value changes in the environment and
natural resources. Conjoint analysis is applied in representing the individual judgment of multi-
attribute incentives (Khaw et al, 2015). The experimental analysis of choice is the conjoint
analysis type we focus on since it is parallel to Random Utility Model (RUM). The first step of
stated preference is the identification of the set of attributes followed by the selection of the
measurement unit of an individual attribute. The third step is specifying the number and
magnitude of attribute levels followed by experimental design. The fifth step is surveying
instrument design followed by model estimation. The final step is using the parameters to
simulate choice. The method is appropriate for evaluating environmental resources. The method
has disadvantages which include hypothetical bias, strategic bias and question framing biases
(Loomis, 2014). The technique may answers that are poorly thought or misleading believing it to
be hypothetical.
Revealed Preference Methods are meant to document the actual behavior of individuals
empirically compared to the hypothetical as in stated preference method. There are several
revealed preference methods including hedonic pricing methods and travel cost models. I choose
to discuss the Hedonic Pricing Methods. This evaluation technique involves looking the market
pricing trends across several geographic locations and inferring the quantities of environmental

Climate Change and Valuing the Environment6
goods that are found in the different locations (Rakotonarivo, Schaafsma and Hockley, 2016).
The difference housing markets are compared then deduce how the price differentials are
affected by the differences in environmental attributes (Kahn, 2017, p 50). This valuation
technique is very appropriate for valuation of environmental quality such as noise, air pollution
or water pollution. An example application of this technique is that people are willing to pay
more for a house that is located in a neighborhood that offers environmental benefits.
Revealed Preference Methods have several advantages as well as some few
disadvantages. One advantage is the fact that the methods are appealing to economists since the
techniques rely on observed and actual market behaviors. Secondly, the values these techniques
produce are readily accepted by economists since they are very useful for making environmental
policies. The techniques also come with a number of limitations too. The first limitation is the
inability to estimate non-use values. Secondly, the estimated values depend on technical
assumptions that are drawn from the relationship between surrogate market good and the non-
market good to be valued (Neuteleers and Engelen, 2015). The other limitation is the fact that the
estimated monetary value of non-market ecosystem services is prone to distortion due to policy
failure or market imperfections.
In conclusion, climate change has several impacts on the economy and society at large.
Various experts and economists have different views regarding the impact of climate change.
Climate change is mainly associated with the burning of fossil fuels and it has a huge economic
impact in developing countries. Environmental valuation is also important and they are various
methods that can be applied to value environmental goods. The two main valuation methods are
Stated Preference Methods and the Revealed Preference Methods that are further subdivided into
other techniques. The valuation techniques have advantages as well as limitations in their

Climate Change and Valuing the Environment7
implementation. The impact of climate change plays a critical role in determining the nature and
growth of economies all over the world.
Bibliography
Boserup, E., 2017. The conditions of agricultural growth: The economics of agrarian change
under population pressure. Routledge.
Carleton, T.A. and Hsiang, S.M., 2016. Social and economic impacts of climate. Science,
353(6304), p.aad9837.
Freeman III, A.M., Herriges, J.A. and Kling, C.L., 2014. The measurement of environmental and
resource values: theory and methods. Routledge.
Hornsey, M.J., Harris, E.A., Bain, P.G. and Fielding, K.S., 2016. Meta-analyses of the
determinants and outcomes of belief in climate change. Nature Climate Change, 6(6), p.622.
Intergovernmental Panel on Climate Change, 2015. Climate change 2014: mitigation of climate
change (Vol. 3). Cambridge University Press.
Kahn, M.E., 2017. Environmental valuation using cross-city hedonic methods. In Environmental
Valuation (pp. 45-66). Routledge.
Kelley, C.P., Mohtadi, S., Cane, M.A., Seager, R. and Kushnir, Y., 2015. Climate change in the
Fertile Crescent and implications of the recent Syrian drought. Proceedings of the National
Academy of Sciences, 112(11), pp.3241-3246.
Khaw, M.W., Grab, D.A., Livermore, M.A., Vossler, C.A. and Glimcher, P.W., 2015. The
measurement of subjective value and its relation to contingent valuation and environmental
public goods. PloS one, 10(7), p.e0132842.

Climate Change and Valuing the Environment8
Loomis, J.B., 2014. 2013 WAEA keynote address: Strategies for overcoming hypothetical bias
in stated preference surveys. Journal of Agricultural and Resource Economics, pp.34-46.
Moore, F.C. and Diaz, D.B., 2015. Temperature impacts on economic growth warrant stringent
mitigation policy. Nature Climate Change, 5(2), p.127.
Nelson, G.C., Valin, H., Sands, R.D., Havlík, P., Ahammad, H., Deryng, D., Elliott, J., Fujimori,
S., Hasegawa, T., Heyhoe, E. and Kyle, P., 2014. Climate change effects on agriculture:
Economic responses to biophysical shocks. Proceedings of the National Academy of Sciences,
111(9), pp.3274-3279.
Neuteleers, S. and Engelen, B., 2015. Talking money: How market-based valuation can
undermine environmental protection. Ecological Economics, 117, pp.253-260.
Oreskes, N., 2018. The scientific consensus on climate change: How do we know we’re not
wrong?. In Climate Modelling (pp. 31-64). Palgrave Macmillan, Cham.
Rakotonarivo, O.S., Schaafsma, M. and Hockley, N., 2016. A systematic review of the reliability
and validity of discrete choice experiments in valuing non-market environmental goods. Journal
of environmental management, 183, pp.98-109.
Smith, P., Davis, S.J., Creutzig, F., Fuss, S., Minx, J., Gabrielle, B., Kato, E., Jackson, R.B.,
Cowie, A., Kriegler, E. and Van Vuuren, D.P., 2016. Biophysical and economic limits to
negative CO 2 emissions. Nature Climate Change, 6(1), p.42.
Wise, R.M., Fazey, I., Smith, M.S., Park, S.E., Eakin, H.C., Van Garderen, E.A. and Campbell,
B., 2014. Reconceptualising adaptation to climate change as part of pathways of change and
response. Global Environmental Change, 28, pp.325-336.